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Goldman Says U.S. Oil Request Won't Stop Stockpiles Dwindling

(Bloomberg) -- The outlook for oil is still bullish even if OPEC accedes to U.S. pressure to boost supply, Goldman Sachs Group Inc.’s top commodities analyst said.

The U.S. government has quietly asked Saudi Arabia and some other producers in the Organization of Petroleum Exporting Countries to increase oil production by about 1 million barrels a day, according to people familiar with the matter.

But Jeff Currie, Goldman’s global head of commodities research, said an increase of that magnitude -- which was already his assumption -- won’t prevent stockpiles from diminishing in the second half of this year.

“It’s not enough,” he said on the sidelines of the S&P Global Platts’ annual crude oil summit in London, where he’d just finished speaking.

His bullishness reflects a wider belief that investors including some of Goldman Sachs’ own clients are under-appreciating energy and commodities, he said during the speech. Surging oil demand, particularly in the case of China, is likely to surprise the market to the upside. There’s also been a shift away from long-term investment in the oil industry toward short-cycle spending, he said.

“Between now and the end of this business cycle, I definitely want to be long oil,” Currie said.

The upbeat outlook comes at a pivotal moment in oil markets. OPEC members are preparing to meet later this month to discuss their coordinated output cuts, which are supposed to expire at the end of the year. There are already growing signs they’ll add barrels sooner than that.

While OPEC has a window of opportunity to manage the oil market without losing its share -- due to infrastructure constraints in the U.S. -- it will still take three or four months for the group to add supply, according to Currie. The market is currently heading for a shortfall of about 1 million barrels a day between supply relative to demand, he said.

While Goldman’s clients say the commodities space is “un-investible,” the strength of oil demand, as indicated by pricing structures, suggests they may be wrong, Currie added. Long-term investment in the oil sector has been “choked off’ in favor of short-cycle investment, and supplies from U.S. shale producers will likely be constrained through late 2019, he said.